Question

Redding Company has budgeted sales revenues as follows:

                                                                                    June                   July                 August   

Credit sales                                                              $135,000            $145,000            $  90,000

Cash sales                                                                    90,000              255,000              195,000

Total sales                                                                $225,000            $400,000            $285,000

Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month. Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases are:

June                                       $300,000

July                                          250,000

August                                     105,000

Other cash disbursements budgeted:  (a) selling and administrative expenses of $48,000 each month, (b) dividends of $105,000 will be paid in July, and (c) purchase of equipment in August for $30,000 cash.

The company wishes to maintain a minimum cash balance of $50,000 at the end of each month. The company borrows money from the bank at 8% interest if necessary to maintain the minimum cash balance. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $50,000. Assume that borrowed money in this case is for one month.

Instructions

Prepare a cash budget for the months of July and August – below area is for your calculations

Redding Company

Cash Budget

For the Two Months of July and August

                                                                                                                      July             August  

Answer 1

Answer to the above question is shown.